Luxury brand Burberry (LSE: BRBY) is set to release its highly anticipated first-quarter trading statement this Friday. This article examines Burberry’s recent financial performance, challenges in the United States market and its resilience in the global luxury market.
Despite delivering strong financial results in May, Burberry’s share price saw a notable decline following its announcement despite revenue, profits, and overall cash flow improving. Analysts attributed this decline to the firm’s relative underperformance compared to other prominent luxury brands operating in the same period.
One key challenge for Burberry lies in the diminishing demand within the United States market. Throughout the year, sales have seen a 3% decline, with the last quarter showing a more substantial drop of 7%. Of particular concern was the declining sales of the brand’s more accessible product range, indicating potential difficulties in attracting aspirational consumers amidst a slowdown in US consumption.
However, the luxury market has historically demonstrated resilience during economic downturns, which could potentially mitigate the impact of the ongoing US slowdown on Burberry’s profitability.
Currently, Burberry’s shares are trading at 18 times their estimated earnings for 2024. While Burberry’s growth path may not match that of other industry leaders such as LVMH and other high-flyers, the brand’s consistent expansion suggests it retains a competitive edge and offers favourable value relative to its peers.
Analysts have assigned two ‘buy,’ 18 ‘hold,’ and two ‘sell’ recommendations, resulting in a consensus ‘hold’ rating for Burberry. The median estimate projects a long-term price target of 2,342.50 pence per share, indicating a potential increase of approximately 13% from the current price as of July 11, 2023.
Burberry’s share price has displayed noticeable fluctuations throughout the year. After a notable surge of over 30% and reaching an all-time high of 2,656 pence in April, the share price reversed its gains, nullifying its year-to-date performance.
The Takeaway
Burberry’s upcoming first-quarter trading statement will shed further light on its performance and outlook. The resilience of Burberry in the global luxury market reduces its vulnerability to economic shocks, indicating that a prolonged US slowdown is unlikely to significantly affect the company’s profits. This provides a compelling reason for optimism in the brand’s future prospects.
